LAW OF SALE OF GOODS NOTES PDF

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LAW OF SALE OF GOODS Law applicable: The Contract Act 2010. Sale of Goods act Cap 82. Principles of common law and equity. Case law. The Sale of Goods and Supply of Services Bill, 2015. 1. Historical Background of the law of sale of goods in Uganda. The law of sale of goods in Uganda is principally ...

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LAW OF SALE OF GOODS Law applicable: The Contract Act 2010. Sale of Goods act Cap 82. Principles of common law and equity. Case law. The Sale of Goods and Supply of Services Bill, 2015. 1. Historical Background of the law of sale of goods in Uganda. The law of sale of goods in Uganda is principally governed by the Sale of Goods Act Cap 82 (SOGA). The Act is a codification of a long era common law judicial decisions from England. The Sale of Goods Act Cap 82 which now applies in Uganda sets out the legal framework of sale of goods between a buyer and a seller. The Act merely reproduces the old United Kingdom Sale of Goods Act 1893 which was received in Uganda by virtue of the reception clause under the Uganda Order in Council, 1902, which made applicable to Uganda, Statutes of General application in force in the UK as on 2nd August, 1902. The SOGA came into force on the 1st January 1932 by virtue of Ordinance No. 28 of 1930 and was codified as Chapter 79 which with time came to be Chapter 82, as of 2000. Whereas the English Act from which the Ugandan Act derived its numerous provisions has been amended with the latest amendment being the one in 1994, the Ugandan Act has remained static. This has preempted various stakeholders to propose an amendment of the Act by proposing The Sale of Goods and Supply of Services Bill, 2015 currently before parliament. The law of sale of goods concerns consensual transactions based on an agreement to buy and sell goods. This is what we call a contract of sale of goods. The general principles that relate to contracts e.g. offer, acceptance, consideration and others apply to a contract of sale of goods and the parties are free to agree on the terms which will govern their relationship. The Act on the other hand lays down principles that are intended to protect a party to such a contract as well a rules of general application where the parties fail to provide for contingencies which may interrupt the smooth performance of a contract of sale. 2. Contract of Sale of Goods. NANYUMBA NICHOLAS 0776478409

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A contract of sale of goods is defined in Section 2(1) of the SOGA as a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration called the price. Where the property in the goods is transferred from the seller to the buyer, the contract constitutes a sale. However, where no transfer of property takes place and the same is to take place at a future date or is subject to some further condition then this is called an agreement to sell under S.2(4) of the Act. 3. Characteristics of a Contract of sale. The definition given in S.2 of the SOGA has some essential characteristics that make up a contract of Sale of goods. The essential characteristics being: i) ii)

iii)

iv)

v)

vi)

The existence of two distinct parties to the contract that is a buyer and a seller. Transfer of property; property in this context means ownership of the goods. The goods. The mere transfer of possession of the goods will not suffice as the seller must either transfer or agree to transfer the property in the goods to the buyer so that a contract of sale of goods is fully constituted. The subject matter of the contract must be goods. Goods are defined under S.1 (h) to include all chattels personal other than things in action and money, and all emblements, industrial growing crops, and things attached to or forming part of the land, which are agreed to be severed before sale or under the contract of sale. Ps. Note: chattels, emblements and things in action. (Find the definition of each of these.) The consideration for a contract of sale of goods must be money termed as the price. Money in this context would include cash and cheques but would not include credit or some other form of consideration. (see Aldridge v. Johnson (1857) 7 E & B 885, Court of Queen’s Bench) No formalities to be observed; there are no formalities prescribed by the Act to be followed when the contract is being executed. However, consider ss. 4(1) and 5(1) on the preposition that the contract may be in writing or orally made and that if it is above two hundred shillings or more, it shall not be enforceable by action unless the buyer shall accept part of the goods so sold, and actually receive them, or give something in earnest to bind the contract, or in part payment, or unless some note or memorandum in writing of the contract is made and signed by the party to be charged or his or her agent for that purpose. It involves either “a sale or agreement to sell.” Where the property in the goods is immediately transferred from the seller to the buyer at the time of making the contract, the contract is a sale. Whereas , where the transfer of property in goods is to take place at a future time or subject to a condition to NANYUMBA NICHOLAS 0776478409

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3.1.

be fulfilled thereafter, then the contract is an agreement to sell. It’s an executory contract. The agreement liable to becoming a proper sale upon lapse of time or fulfillment of the condition subject to which the property in the goods was or is to be transferred (S.2(4)). Distinction between “a sale” and “an agreement to sell.”

The following are the consequences which flow from a sale and an agreement to sell; (a) Transfer of property (ownership); In a “sale”, property in the goods passes to the buyer at the time of making the contract, with the result that the seller ceases to be the owner of the goods while the buyer becomes the owner thereof and the buyer acquires a “jus in rem” i.e. a right to enjoy the goods against the whole world. Whereas in “an agreement to sell”, the property in the goods is not transferred to the buyer at the time of the contract, with the result that the parties acquire only a “jus in personam” i.e. a right to either the buyer or the seller against the other for any default in fulfilling his part of the agreement. (b) Passing of Risk of Loss; The general rule is that unless otherwise agreed, the risk of loss prima facie passes with property; i.e. goods remain at the seller’s risk until the property therein is transferred, whereupon the goods are held at the buyer’s risk. Thus, in case of a “sale, if the goods are destroyed, the loss falls on the buyer, even though he may never have taken possession of them. On the other hand, in the case of “an agreement to sale”, the loss will be borne by the seller even though the goods are in possession of the buyer. (c) Effect/Consequences of Breach; In case of a “sale”, if the buyer wrongfully neglects or refuses to pay the price of the goods, the seller can sue for the price, even though the goods are still in his (seller’s) possession. Whereas in the case of “an agreement to sell”, if the buyer fails to accept and pay for the goods, the seller can only sue for damages and not for the price, even though the goods are in the buyer’s possession. (d) Right of Resale; In case of a “sale”, the property passes to the buyer and as such, the seller in possession of the goods after sale cannot resell them. If he does so, the subsequent buyer who has knowledge of the previous sale does not acquire a title to the goods and the original buyer can sue as owner of the goods and recover them from the third person/subsequent buyer. The original buyer can also sue the seller for breach of contract or in tort for conversion. However, the right to recover the goods from the third person is lost if the subsequent buyer had bought the goods bonafide [in good faith] and without notice of the previous sale. See S.25. In “an agreement to sell”, the property in the goods remains with the seller with the result that the seller can dispose of the goods as he wishes and the original buyer can only sue the seller for breach of contract. Under the circumstances, the subsequent NANYUMBA NICHOLAS 0776478409

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buyer acquires a good title to the goods, (irrespective) whether or not he had knowledge of the previous sale. (e) Insolvency of buyer before payment for the goods; In case of a sale, “the seller” will be required to deliver up the goods to the official receiver, whereas in the case of “an agreement to sell”, the seller may refuse to deliver the goods to the official receiver unless they have been paid for. (f) Insolvency of seller before

delivering the goods but after the buyer has already paid the price; In case of a “sale”, the buyer would, in the circumstances, be entitled to recover the goods from the official receiver since the property in the goods rests with him. However, in case of “an agreement to sell”, the buyer would only be able to claim as a creditor but he cannot claim the goods because property in them still rests with the seller. 4. A SALE CONTRACT DISTINGUISHED FROM OTHER TYPES OF CONTRACTS A contract of sale of goods needs to be distinguished from several other transactions which are normally quite different from a sale of goods but if care is not exercised could be confused with a sale of goods contract. This is so because they have some resemblance. According to Atiyah’s Sale of Goods these contracts are1: i) ii) iii) iv) v) vi) vii) viii) 4.1.

Contracts for barter or exchange; A gift; A contract of bailment; A contract of hire-purchase; A contract of loan on the security of goods; A contract for the supply of services; A contract of agency; and Licences of intellectual property such as ‘sales’ of computer software

Sale and Exchange

As already noted above, the consideration for a contract of sale of goods is money. The fact that consideration for goods must be money and the term “goods” as defined under S.1 (h) excludes money clearly serves to distinguish barter trade from a sale of goods contract ordinarily. A problem however could arise where a coin which is a collector’s item may be both a “good” and at the same time legal tender and there may be a sale of such a coin. In such an event, the coin does not possess the usual negotiable qualities of money, and if the sale is by a thief he cannot pass a good title.

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Twelfth edition (2010).

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In his Commentaries on the Laws of England, William Blackstone defined money as “...

the medium of commerce.... Money is an universal medium, or common standard, by comparison with which the value of all merchandise may be ascertained; or it is a sign, which represents the respective values of all commodities. Metals are well calculated for this ... and a precious metal is still better calculated....” In Moss v Hancock ([1899] 2 QB 111, Justice Darling adopted these words: "Money ... (is)

that which passes freely from hand to hand throughout the community in final discharge of debts and full payment for commodities, being accepted equally without reference to the character or credit of the person who offers it and without the intention of the person who receives it to consume it or apply it to any other use than in turn to tender it to others in discharge of debts or payment of commodities." Therefore, since barter is an exchange of goods for goods and does not involve money then it is not a contract of sale. The position becomes more complicated where goods on the one hand are exchanged for goods plus money on the other, as is common where people exchange and older product say a phone for a newer one. This will raise the question of whether this is a sale or an exchange. In Aldridge v. Johnson (1857) 7 E & B 885, the parties exchanged 52 bullocks valued at £192 for 100 quarters of barley valued at £215, the balance of £23 being paid in cash, it being held that the parties intended the arrangement to be for reciprocal sales of the goods, effectively two contracts of sale with the proceeds being offset against each other. In such a case as above, the English courts have held that the determining factor of whether such a contract is a sale or exchange is to consider whether the money constitutes the substantial part of the contract consideration and also the intention of the parties so long as this intention does not include provisions manifestly inconsistent with the intended nature of the transaction. (see Street v Mountford [1985] AC 809 an AG Securities v Vaghan [1988] 3 ALL ER 1058, where the House of Lords applied the equity maxim “Equity looks at the content rather than the form”. the court settled the approach to be adopted in the analogous case of an agreement designed to be a lease but dressed up to look like a licence.) It would seem that a transaction relating to exchange of an old car for a new one would amount to a sale even though no money actually passes if, as is usual, the parties fix a notional price which is set off against the price of the new car. However look at the case of Flynn v. Mackin [1974] 1 IR 101 before the Irish Supreme Court. 4.2.

Sale and gift.

Ordinarily, no problems arise in distinguishing a sale from a gift. A gift is a transfer of property without any consideration and as such it is not binding while it remains executory unless made under a deed. NANYUMBA NICHOLAS 0776478409

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If there is truly no consideration provided for the gift then clearly there cannot be a contract of sale or, indeed, any other contract. However, the situation is different where the provision of the gif is dependent upon the purchaser entering a contract for the purchase of something else, as is often the case in marketing campaigns. The precise nature of the contract under which the ‘free gift is provided was considered by the House of Lords in the much quoted decision in Esso Petroleum Ltd v. Commissioners of Customs and Excise [1976] 1 All ER 117. In this case, ‘World Cup Coins’ (to celebrate the England football team’s appearance in the 1970 World Cup Finals) were given free by Esso with every four gallons of petrol sold. The issue for the court was whether the coins attracted purchase tax (now VAT) under a contract of sale. It was held by the House of Lords that although the transaction was not a gift, inasmuch as the garage was contractually bound to supply the coin to anyone buying the four gallons of petrol, it was not a sale of goods either. Lord Simon was of the opinion that this constituted a collateral contract in which the consideration for the free coin was the purchase of the petrol, a view shared by Lord Wilberforce. However, this view was not shared by all of the Law Lords. 4.3.

Sale and bailment.

A bailment is contract is a transaction under which goods are delivered by one party (the bailor) to another (the bailee) on such terms which would require the bailee to hold the goods and ultimately redeliver them to the bailor or in accordance with his or her directions. In such a contract, the property in the goods is not intended and will not pass on delivery to the bailee, though the parties may intend that in the due course of their dealings, the property should pass. In a contract that indicates that upon delivery, the property in the goods should pass there and then, then that is a sale and not a bailment. In South Australian Insurance Co v Randell (1869) PC A farmer left corn with a miller on terms that he could claim at any time the return of the same quantity of corn or its market value. The corn was mixed with other corn deposited with the miller. The mill and its contents were destroyed in a fire. The miller’s insurance company refused to pay out in respect of the deposited corn. They claimed that it belonged to the farmer and so the mill held it under a contract of bailment.it was held by the Privy Council that there was no stipulation that the farmer should be entitled to have returned the actual corn deposited, only the same amount, or its value. Therefore there was a transfer of property to the mill owner and this was not a contract of bailment. The insurance company were liable to pay out in respect of that corn. A similar case is that of Chapman Bros v Verco Bros & Co. Ltd (1933) 49 CLR 306 where farmers delivered bags of wheat to a company carrying on business as millers and wheat NANYUMBA NICHOLAS 0776478409

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merchants. The wheat was delivered in unidentified bags which were identical to those in which other farmers delivered wheat to the company. The terms of the transaction required the company to buy and pay for the wheat on request by the farmer or failing such request, on a specified date, to return identical bags. Although the contract referred to the company as ‘storers’, it was held by the Australian High Court that this transaction as necessarily one of sale as the property passed to the company on delivery. 4.4.

Sale and Hire purchase.

Contracts of hire-purchase are similar to sale contracts in a number of ways. This is so because in most cases or rather in all case of hire-purchase, the ultimate sale of goods is the actual object of the transaction. Under a hire-purchase transaction, the goods are delivered to the hire purchaser for his or her use at the time of the agreement but the owner of the goods agrees to transfer the property in the goods to the hire purchaser only when a certain fixed number of installments of the price are paid by the hirer. This means that that no agreement to buy exists at the time the hire purchase agreement is made but rather there is a bailment of the goods coupled with an option to purchase them which option may or may not be exercised. Where a person lets out a commodity to another, where the hirer is to pay a specified amount of money in a specified number of installments, possession of the goods passes to the hirer who reains possession but does not become a buyer or owner of the commodity until he or she exercises the option to purchase. In Christine Bitarabeho vs. Dr. Edward Kakonge CACA No.4 of 1999, the plaintiff and his wife imported into Uganda from Japan the Suit vehicle in 1990. The vehicle was registered in the names of the Plaintiff. The wife of the plaintiff, Dr. Mrs. Zalah Kakonge, endorsed the log book has a co-owner in order to protect her interest in the vehicle. The defendant's husband (Paul Bitarabeho) showed interest in the vehicle and agreed to buy it only if he would persuade his wife, the defendant to sell the second hand pajero. The wife (now defendant) did not comply and the sale was not executed. When Paulo Bitarabeho failed to raise the purchase price he entered into a rental agreement for one year at a cost of 50,000 for which he paid an advance of 11 million. Sadly Mr. Paulo Bitarabeho died while the car was still in his possession. His widow, the defendant started driving the vehicle without the authorisation of the plaintiff since at the time of the husband’s death the advance payment had been exhausted. The widow claimed that the late husband had actually purchased the vehicle. It was held by the Court of Appeal that the evidence on record clearly showed that Paulo Bitarabeho was interested in the purchase of the vehicle if he could persuade his wife, the defendant, to sell their old Pajero. That would have enabled him to raise the purchase price. That did not materialise because the defendant refused to consent. As a NANYUMBA NICHOLAS 0776478409

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result Paulo Bitarabeho was unable to raise the purchase price. As he had been using the vehicle for some time, he agreed to hire it via a hire-purchase contract and that after the deposit had been exhausted, the appellant was required to return the car and the claim for the car by the respondent was a valid one. Where the buyer or “hirer” is bound to buy the good on the outset but the payments are in installments, the courts have held this to be a credit sale which is actually a sale of goods within the Act as was the case in Lee v Butler [1893] 2 QB 318. In this case, furniture was supplied to Lloyd on a ‘hire and purchase’ agreement: Lloyd would pay ‘rent’ for the goods over a three month period and property would only pass when all the payments had been made. The issue arose as to whether that was a contract of sale or one of hire. It was held by the Cou...